Washington: The economy showed signs it maintained speed into the fourth quarter as retail sales increased in October and a gauge of manufacturing in New York state rose this month for the first time since May.

Other data on Tuesday showed muted price pressures at the wholesale level. That should provide the Federal Reserve scope to give more aid to the economy in the face of an increased threat to the recovery from Europe's debt crisis.

"The economy seems to be in solid shape," said Alex Hoder, an economist at FTN Financial in New York. "Growth is not strong, but it is not too bad either, and much better than the fourth-quarter recession many were expecting just a few months ago."

The stronger tone of the economy was further enhanced by a report from the New York Federal Reserve Bank showing factory activity in New York state grew in November for the first time since May as shipments improved even though new orders fell.

The survey of manufacturing plants in the state is one of the earliest monthly guideposts to US factory conditions, though it accounts for only a small slice of the overall manufacturing sector, which has been a key pillar of the recovery.

The data supported recent reports suggesting the economy was gaining traction after stumbling in the first half of the year. Economists at JPMorgan said growth in the current quarter was tracking close to a 3 percent annual pace after expanding at a 2.5 percent rate in the third quarter.

A third report showed the Producer Price Index, a measure of prices received by US farms, factories and refineries, fell 0.3 percent on weak gasoline and motor vehicle prices. It was the first drop in four months. Excluding volatile food and energy, core wholesale prices were flat.

FED SEEN EASING

Stocks on Wall Street closed higher, but investors remained worried about Europe's debt crisis. US Treasury debt prices were slightly lower, while the dollar firmed broadly.

Despite a strengthening economy in the last few months, the recovery is not yet out of the woods, with analysts warning that Europe is almost certainly facing recession.

"If you were going to make a list of downside risks to the economy, the sovereign debt issues in Europe, the banking issues in Europe, are at the top of everybody's list of identifiable threats," White House Council of Economic Advisers Chairman Alan Krueger said.

With the outlook for Europe darkening, economists believe the Fed will want to move to safeguard the US recovery, although officials at the central bank continue to differ over the threshold for further action.

October's rise in retail sales suggested consumer spending would support growth in the fourth quarter, though economists worry that much of the spending is being funded from savings.

"Consumer spending is holding up better than many people had anticipated, given a 9 percent unemployment rate and modest wage gains," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester Pennsylvania. "This pace of consumer spending is only sustainable if the labor market continues to heal."

Wal-Mart Stores Inc (WMT.N) Chief Executive Mike Duke said the retail giant's US customers were still worried about jobs and only one in 10 mothers taking part in its surveys view the economy as "good." With food prices rising more quickly than most wages, some shoppers were concerned about holiday meals, the company said.

Retail sales last month were supported by pent-up demand for motor vehicles. Still, even excluding autos, sales rose 0.6 percent, the largest increase in seven months.

There were also gains in sales of sporting goods, electronics and appliances, and building materials. But clothing store sales posted their largest decline since December 2010 and receipts at service stations fell, reflecting weak gasoline prices.